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Performance Measurement & Rewards

Ex. Chapter. Performance Measurement & Rewards. Articles. “Performance Review: Perilous Curves Ahead” “From Balanced Scorecard to Strategic Gauges: Is Measurement Worth It?” “Risky Business: The New Pay Game” “Why Incentives Cannot Work”. Performance: Units vs. Managers.

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Performance Measurement & Rewards

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  1. Ex Chapter Performance Measurement & Rewards Articles • “Performance Review: Perilous Curves Ahead” • “From Balanced Scorecard to Strategic Gauges: Is Measurement Worth It?” • “Risky Business: The New Pay Game” • “Why Incentives Cannot Work”

  2. Performance: Units vs. Managers • Measure performance of operating units. • planning, decision-making, control • Measure performance of managers. • to hold managers responsible • an incentive to perform well • promotion, firing, pay raises …

  3. Performance: Units vs. Managers • Performance of the manager might differ from performance of the unit. • expenses over which manager has no control • corporate overhead, rent, etc. • a good managers might be assigned to a poor division

  4. Rewards • Should managers be rewarded? • incentives to perform well • attracts talented managers to the firm • might encourage dysfunctional behavior • Reward effort or performance? • effort is difficult to measure • performance = skill + effort + uncontrollable factors

  5. Rewards • How much risk? • stronger incentives  greater risk • more uncertainty  greater risk • most managers are risk averse • Managers rarely have complete control. • rewards are risky… • … but they increase incentives

  6. Comparative Performance • Comparing operating units. • some comparisons are more meaningful than others: • ROI vs. income • % sales growth vs. $ sales growth • an alternative: compare actual performance to a performance target

  7. Performance Targets • Advantages of targets • standards against which performance can be judged • to help managers focus their effort • Disadvantages of targets • incentives to set a low target • incentives to manipulate the numbers

  8. Performance Targets • How difficult should targets be? • conventional wisdom: tight but attainable • depends on how targets are used • difficulty tells manager where to direct attention

  9. Performance Criteria • Objective vs. subjective evaluation • objective measures don’t tell the whole story • subjective evaluations are harder to defend and tend to be overly positive • Financial vs. non-financial measures • financial: the bottom line • non-financial: can be more forward-looking Satisfaction = 9.0

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